Johannesburg - The days of cheap energy were gone and Eskom’s business model needed to evolve for the country’s power sector to be more competitive, energy experts said on Friday.
Following the release of PwC’s 13th annual power and utilities survey last week, which showed that power utilities needed to change their models, energy experts said both Eskom and independent power producers (IPPs) needed to compete equally if South Africa wanted to contain its electricity price increases.
The global utilities surveyed by PwC warned that the integration of new energy sources into the power generation mix of countries would increase the fixed costs in the price of electricity.
Already 20 percent of the 53 electricity utilities that PwC interviewed reported that their fixed costs had increased by more than 50 percent because of new energy sources.
A further third of the utilities expected their fixed costs to increase by more than 50 percent in 10 years time.
Angeli Hoekstra, the leader of power and utilities at PwC Southern Africa, said although the cost of renewable energies had been going down, the fact that the technologies were dependent on weather patterns presented a problem when it came to grid management.
“You’ll always need some base-load capacity to be on stand-by that you’ll switch on and off quickly when the sun is not shining or the wind is not blowing. That increases fixed costs,” Hoekstra said.
Utilities anticipated that distributive generation, which essentially means that electricity comes from many small energy sources, would deliver more than 20 percent of the world’s power generation by 2030.
But although this is seen as an opportunity for new players in the market, conventional electricity utilities saw it as a threat to their business models and expected it to push up the price that the consumer pays for both transmission and distribution.
The study showed that power generation from other sources was already eating into power utilities’ revenues and marginalising the traditional generation.
In South Africa, Eskom warned Parliament last year that the unbundling of assets and transferring some of its functions to the Independent Systems and Market Operator would weaken its credit ratings and borrowing capacity.
But Cornelis van der Waal, the electricity analyst programme manager at Frost & Sullivan, said Eskom’s model needed to evolve.
“Days of cheap energy are gone, to keep the cost down it is necessary to create efficiencies. We need to increase competitiveness. Although the government in South Africa is working on the integration of IPPs, the current model doesn’t facilitate that to happen in an efficient manner. Change is required,” he said.
Van der Waal said the best solution would be to let Eskom and IPPs compete in all power generation areas instead of ring-fencing base-load generation to one, and alternative energies to the other.
Hoekstra said unlike in other countries, Eskom was far from being under threat due to the entry of new market players because it already had plans to manage the IPPs. - Business Report